Accounting can be an information system which identifies, records, analyzes interprets and communicates the economical data of your financial entity. Accounting includes three basic activities – it identifies, records, and communicates the cost-effective era of an organization to interested users. Let us take a close look at these three activities.
Identifying Economic Events: Many events are happening on a daily basis in business. A lot of them are affecting position in the business whereas, some don’t. Events affecting position of the business i.e. Assets=Liability+ Owner’s Equity, are called Economic events and meant to be recorded in accounting system. To spot economic events; a firm selects the cost-effective events tightly related to its business. Types of economic events will be the sale of snack chips PepsiCo, Providing of telephone services by AT & T, and payment of wages by Ford Motors Company. Types of non-economic era of exactly the same companies may be appointing a whole new manager by PepsiCo and departure of your trusted employee from AT & T.
Recording Economic Events: When a company like PepsiCo identifies economic events, it records those events so that you can provide a reputation its financial activities. Recording consists of keeping a planned out, chronological diary of events, measured in dollars and cents. Recording comes by having a process called double entry accounting system. The system includes recording, summarizing, checking mathematical accuracy and preparing statement of monetary position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by way of accounting reports. The most frequent of the reports are known as Financial Statements. Parties interested into business’s financial information can be classified into three main categories. The your clients are Internal, External and Government. To really make the reported financial information meaningful, PepsiCo reports the recorded data inside a standardized way. It accumulates information due to similar transactions. As an example, PepsiCo accumulates all sales transactions over the certain period of time and reports your data as one amount within the company’s fiscal reports such data have been proved to get reported within the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies numerous transactions and produces a compilation of activities understandable and meaningful.
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